ETS epiphany

The Government's proposed delay of the commencement of the emissions trading scheme and the setting of a price of $10 per tonne for the first 12 months of operation on the one hand can be seen as capitulation to the economy in the short term which is offset by higher carbon emissions reduction targets.

The changes are better viewed as an opportunity for the Government to extend the start date so that it can refine and amend the Australian Carbon Pollution Reduction Scheme (CPRS) Strategy, no doubt because the Government might realise it was flawed from the onset.

Carbon emissions, climate change and carbon emissions trading markets are new industries for Australia and we are all still learning, including the Government. There is no doubt that the Rudd Government rushed into its carbon mitigation responsibilities without full consideration of the White Paper because Australia's CPRS is designed to become a money spinner while applying some pressure to emissions intensive industries to cut their pollution. It does not however, do enough to actually reduce carbon emissions and it may be that the Government now realises that this is true.

Under the CPRS, polluting entities must calculate and report to their annual carbon emissions (carbon foot print) the industry regulator and buy permits to offset each tonne emitted. The permits are financial instruments that can be bought by anyone and they can be banked for later resale and applied as security against loans, because they are government guaranteed bearer bonds. Each permit has a registered number recorded on a title register in the same manner as a Torrens Title over real estate. The permits are called 'Australian Emission Units' (AEUs).

The notion of creating carbon permits within the framework of an emissions trading market does add real financial costs to those entities that pollute the atmosphere but it does little to actually reduce carbon emissions because the emphasis is on permit prices.

They will be affected by supply and demand with AEU price expected to increase under a regime of a controlled supply and demand market regulated by annual releases of new carbon emissions permits. Permits can be bought by anyone. They can be 'forward purchased' for the next year which then affects subsequent supply and demand ratios. The general thinking is that the higher the prices for permits, the more incentive there is to reduce carbon emissions.

It is arguable whether the CPRS will do more than raise a large amount of money in permit sales for the Government, to the tune of $11.5 billion in the first year and $12 billion in the second. The CPRS is unlikely to significantly reduce carbon pollution caused by land-use-change, agriculture and forestry.

Yet without effective measures to slow deforestation, clearing of forests will likely release an additional 87 to 130 giga tonnes of carbon (GtC) by 2100, an amount equivalent to the carbon release from more than a decade of global fossil fuel combustion at current rates. Reducing emissions from deforestation and degradation of land is critical for climate change mitigation and the CPRS in its current form, does not directly address land, agriculture and forestry when it so easily could. This may be the epiphany that the Government has recently experienced.

The United Nation's Food and Agriculture Organisation (FAO) assessment for the years 1990-2005 shows that 13 million hectares per year were cleared of forestry and that only 5.5 million hectares per year where reforested. The IPCC research puts carbon emissions from deforestation in these periods at 5.8 Gt and their report notes that deforestation mitigation has the 'largest and most immediate carbon stock impact in the short term per hectare, per year.'

The research by the Harvard Project on International Climate Agreements' explains that global emissions from tropical deforestation, is responsible for around 20-25 per cent of all greenhouse gas emissions. This is because land clearing, logging, land use change, bushfires and forestry diseases remit stored carbon to the atmosphere. The Stern Report (2007) states that land-use change accounted for 18 per cent of global greenhouse gas emissions in 2000 making it the second largest source of carbon emissions, after the power sector.

The delay in the start of Australia's emissions trading scheme is an opportunity to amend and revise the CPRS so that it can do more than make money. It must also encourage the retention of trees and forestry and reduce the impact of land-use-change. Yet the existing scheme does not offer real incentives to increase tree stock and reduce land-use-change.

In defence of the Government's original plans, the $11.5 billion-plus revenue from permit sales is to be handed back to the community in the form of subsidies, tax deductions, grants, investment in science and technology and training. This is very good but the CPRS must also work to reduce carbon emissions significantly, and promptly.

The Government's announcement of the delay comes with concessions and amendments which do encourage carbon pollution reductions before the scheme starts, by allowing reforestation projects to generate permits for carbon stored from 1 July 2010, creating economic opportunities in regional Australia and for forestry owners.

Against this background, Senator Xenophon is right in demanding a stronger emissions reduction target and improvements to the scheme because meaningful carbon emissions reductions were unlikely to have resulted from the existing CPRS format.

The inalienable truth is that tree and forestry retention are the prime keys to carbon and climate change mitigation yet population growth and increased demand for food production, necessitates the clearing of trees and forestry. This is the real epiphany.

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